Investing in IT, telecom, FMCG and rural themes is a good way to ensure consistent returns and preserve capital as well, Naveen Kulkarni, Chief Investment Officer, Axis Securities, says in an interview to Moneycontrol’s Kshitij Anand. Edited excerpts:
Q) The Indian market hasn’t looked back after hitting a low in March. Do you think the majority of the market has hit a bottom along with the Nifty? What is the reason for the optimism?
A) The market optimism is not just limited to India. Markets around the world have done very well. Nasdaq has hit an all-time high. The optimism stems from the opening up of the economy, pent-up demand driving subsequent quarters and unlimited liquidity because of central banks around the world.
Liquidity continues to be the key driver of asset prices as higher valuations have become the norm. As for the bottom of the market is concerned, the March 2020 bottom seems to be more likely set for now and we are unlikely to test such lows any time soon.
Q) If we have made a bottom, this will be the shortest bear market of all times. It went down in a hurry and then rallied in a hurry as well.
A) While the bottom and the rise have been very fast but the challenges of the new order are yet to be seen. There will be challenges of growth coming back to normal levels post the pent up demand period and improvement in capacity utilization. This is a challenge that markets will face over the next year.
Q) Which are the stocks and sectors likely to benefit the most when the lockdown is lifted?
A) All the sectors will benefit as lockdown opens but in the immediate term the consumer discretionary space, which had almost zero sales during the lockdown period, should see the strongest improvement.
Apart from consumer discretionary, areas like restaurants, jewellery, auto and apparels will see a significant respite.
Q) What is your call on financials, metals, auto and realty sectors? Each one of these has been through its sector-specific troubles. How should investors play them?
A) There is value in the financial space as valuations are compressed and challenges could be manageable. We are slowly increasing allocation in the financial space.
The auto sector, on the other hand, has rallied and it offers limited upside from the current levels. We also believe that there are structural demand challenges for the bulk of the automobiles sector (barring tractors) and continue to remain cautious on the sector.
The realty sector can be an interesting contra long-term bet but the near-term challenges remain significant.
Q) Which sectors are likely to lead the next leg of the rally?
A) BFSIwill be clearly the sector to lead the rally, as valuations are compressed and the impact (of the lockdown) on the sector was quite significant.
Apart from financials, the IT sector should continue to see an increase in allocation over the next couple of months as it is a solid bet of the global recovery.
Q) The monsoon season got off to a stormy start – what is your outlook? Which are stocks and sectors that will benefit the most?
A) Monsoon impact will be seen over the due course. The market is not so much focused on monsoon and the plays related to monsoon are tractors or agri plays, which have already performed.
Q) FIIs are slowly making their way back into Indian markets. After a strong May, it looks like FIIs will close the month in net inflows. What does it say about the future?
A) May saw good inflows from the FIIs and flows have continued June as well. However, predicting FII flows is a great challenge as it is ETF and quant-driven, which is based on global liquidity.
It is best to assume that FII flows will remain highly uncertain while the DII flows will be quite consistent. That is the most predictable trend.
Q) The foremost emotion among investors is to preserve capital, especially when demand has contracted and the salaried class is stressed over job losses. What should investors do?
A) Investors should focus on downside protection from current levels. Some of the good themes which will gain more traction are strong balance sheets, digital, telecom, consumer staples, and rural themes.
Investing in IT, telecom, FMCG and rural themes is a good way for consistent returns and preserving capital also.
Q) Life will change after the Nifty went past 10,000. Do you think that increased optimism and liquidity will also lead to a sharp rise in the small and midcaps?
A) A small amount of liquidity can move the small and midcaps so that theme is playing out for now. However, we would be cautious about smallcaps for now unless they fit our larger themes and are backed by a solid balance-sheet.
Thus, it makes sense to have a cautious approach on themes and not necessarily on the market cap objective.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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